Role of Multi National Companies in India: Economics
Role of Multi National Companies in India: Economics
Role of Multi National Companies in India: Economics
Economics
ABSTRACT
KEYWORDS :
Multinational corporations sell technology - both for production and for consumption - on highly imperfect international markets to less developed countries .
The buyers must concern themselves both with appropriateness and with price. Despite some experience to the contrary, multinational firms may increasingly be prepared to sell more labor-intensive technologies and more essential-intensive products.
Political influences upon the governments of less developed countries make it likely that the role of multinational corporations in
the future sale of more appropriate technologies will be concentrated in manufacturing for export. This is what the multinational
companies play an important role in developing countries like India.
Introduction :
The MNCs play an important role in the economic development
of underdeveloped countries. What are multinational companies? These are enterprises or organizations with services
spread across more than one country on a global scale. India
is a home to a number of multinational companies since the
countrys market was liberalized in 1991. India houses majority of multinational companies hailing from the United States.
There are also multinational companies from other countries.
The multinational companies from the United States account
to 37% of turnover of first 20 firms that operate in India; the
others come from European Union and their Asia counterparts.
Multi National Corporations (MNCs) are huge industrial organizations which extend their industrial and marketing operations
through a network of their branches or their majority owned Foreign Affiliates (MOFAs). MNCs are also known as Transactional
corporations (TNCs). Instead of aiming for maximization of their
profits from one or two products, the MNCs operate in a number
of fields and from this point of view, their business strategy extends
over a number of products and over a number of countries.
(i) MNCs are playing a major role in the globalisation process.
(ii) More and more goods and services, investments and technology are moving between countries.
(iii) Most regions of the world are in closer contact with each
other than a few decades back.
As the new Leviathans of our time,
multinational corporations are:
Moreover, MNCs bring with them the most sophisticated technological knowledge about production processes while transferring modern machinery and equipment to capital poor LDCs.
Such transfers of knowledge, skills, and technology are assumed
to be both desirable and productive for the recipient country.
5. Other Beneficial Roles :
The MNCs also bring several other benefits to the host country.
(a) The domestic labour may benefit in the form of higher real
wages.
(b) The consumers benefits by way of lower prices and better
quality products.
(c) Investments by MNCs will also induce more domestic investment. For example, ancillary units can be set up to feed
the main industries of the MNCs
(d) MNCs expenditures on research and development(R&D),
although limited is bound to benefit the host country.
Apart from these there are indirect gains through the realization of external economies.
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There are now 40,000 TNCs whose tentacles straddle the international economy through some 2,50,000 overseas affiliates.
They possess staggering resources as would be clear from the
fact that the sales of 200 top corporations in 1982 were equivalent of 24.2 per cent of the worlds GDP and had risen to 28.3 per
cent of the worlds GDP in 1998.
This shows that 200 top MNCs control over a quarter of the
worlds economic activity. In fact, the combined sales of these
200 MNCs estimated at $ 7.1 trillion in 1998 surpassed the
combined economies of 182 countries. If we subtract the GDP
of the big nine economies ---the United States of America, Japan,
Germany, France, Italy, the United Kingdom, Brazil, Canada and
China ---from the worlds GDP, the GDP of the remaining 182
countries of the world stood at $ 6.9 trillion in 1998 which was
less than the sales of the 200 top MNCs.
An idea of the giant size of these MNCs can also be had from the
revelation made in a study conducted by the Washington based
Institute of Policy Studies (IPS) that of the 100 largest economies in the world, 51 are corporations; only 49 are countries.
The above data show the massive control exercised by the MNCs
on the world economy. In fact, because of their huge capital resources, latest technology and worldwide goodwill, MNCs are in
position to sell whatever product they choose to manufacture in
different countries. The fact is that people in underdeveloped
countries are crazy for the products of these corporations and
prefer their products to the products produced indigenously.
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Research Paper
Reasons for the growth of MNCs :
Reasons for the growth of multi nationals are manifold, the important ones being as follows :
Technological superiorities:
The main reason why MNCs have been encouraged by the underdeveloped countries to participate in their industrial development is on account of the technological superiorities which
these firms possess as compared to national companies. The
under developed countries regard transfer of technology from
MNCs useful on account of the following reason: 1) Industrialization represents the most important way out of under development and the resources of these countries are insufficient
to sustain the industrial progress on their own; 2) Local manpower, materials, Local capital equipment etc have to be optimally exploited and these countries are unable to accomplish
these; 3) Depending totally on local companies would required
heavy imports of raw materials, capital equipment, machinery
and technical knowledge whereas MNCs bring these on their
own; and 4) The underdeveloped countries have to face stiff
competition for selling their products in international markets.
Unless their goods meet international standards and quality
specifications, they cannot sell. MNCs help them in producing
such goods.
Product Innovations :
MNCs have Research and Development Departments engaged
in the task of developing new products and superior designs of
existing products. Therefore their production opportunities are
far greater as compared to national companies.
Payment of dividends and royalty: A large sum of money follows out of the country in terms of payments of dividends,
profits, royalties, technical fees and interest to the foreign
investors.
Distortion of economic structure : MNCs can inflict heavy
damage on the host countries in various forms (such as
suppression of domestic entrepreneurship extension of oligopolistic practices such as unnecessary product differentiation, heavy advertising or excessive profit taking ) supplying the economy with unsuitable technology and unsuitable
products, worsening of income distribution by distorting
Research Paper
Profit Maximisation.
International Network of marketing.
Diversification Policy.
Concentration in Consumer goods.
Location of central control offices.
Techniques to achieve Public Acceptability.
Existence of Modern & Sophisticated Technology.
Business but not social Justice.
MNCs & Process of planned Economic Development in India.
10.) Cultural Explosion.
6) A clause was often inserted in the agreements granting permission to the importer to sub-license the technology;
Research Paper
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